🇱🇻 Latvia’s inflation hits 2.9% in April as IMF warns on fiscal consolidation and growth slows

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Key Takeaways

• Annual inflation in Latvia reached 2.9% in April, according to LSM on 19 July 2026.
• The IMF called for fiscal consolidation in Latvia as inflation rises and growth slows, per Insight EU Monitoring on 21 July 2026.
• Latvia remains one of the EU’s less-indebted members, according to LSM on 22 July 2026.
• Food prices are expected to rise further in Latvia, reported LSM on 21 July 2026.
• Latvia’s unemployment rate held stable at 6.9% in 2025, per LSM on 21 July 2026.

The Data

RIGA — Latvia’s annual inflation accelerated to 2.9% in April, according to LSM on 19 July 2026. The reading comes as the International Monetary Fund calls for tighter fiscal policy, warning that rising prices and slowing economic growth create a delicate balancing act for policymakers.

Food prices are a major driver of the inflation uptick. LSM reported on 21 July 2026 that food costs are expected to rise further in the coming months, adding pressure on household budgets. Core inflation, which strips out volatile food and energy, remains elevated as service sector costs continue to climb.

The Bank of Latvia sets monetary policy for the eurozone as part of the European Central Bank. The next ECB rate decision is scheduled for September 2026. With inflation still above the ECB’s 2% target, the central bank has maintained a cautious stance, holding rates steady at recent meetings.

Latvia’s economy is slowing. The IMF noted on 21 July 2026 that growth has moderated, and the country faces headwinds from weaker external demand and rising input costs. The Central Statistical Bureau of Latvia is expected to release second-quarter GDP data in late August.

The labour market remains relatively stable. Latvia’s unemployment rate held at 6.9% for 2025, LSM reported on 21 July 2026. That level suggests the economy is still near full employment, even as growth cools.

Fiscal Discipline vs. Growth Risks

Latvia’s public finances are a bright spot. The country remains one of the EU’s least-indebted members, according to LSM on 22 July 2026. That low debt burden gives the government room to maneuver, but the IMF is urging restraint.

The IMF’s call for fiscal consolidation — essentially spending cuts or tax increases — comes as the government weighs support for households facing higher food and energy costs. The risk is that tightening too quickly could deepen the economic slowdown. Too slowly, and inflation could become entrenched.

What This Means

Households in Latvia are feeling the pinch. With food prices rising further and inflation at 2.9%, real wages are under pressure. Mortgage rates, tied to ECB policy, remain elevated, squeezing borrowers who took out variable-rate loans.

For businesses, the outlook is mixed. Borrowing costs are high, and input prices — especially for food producers and retailers — are climbing. The potential collapse of airBaltic, flagged by LSM on 20 July 2026, would hit Latvia’s tourism sector hard, reducing visitor numbers and hurting hotels, restaurants, and transport firms.

Outlook

Key data releases ahead include the Central Statistical Bureau’s Q2 GDP report in late August and the July inflation print. The ECB’s September meeting will be watched closely for any signal on rate cuts, which would ease pressure on borrowers.

Analysts expect inflation to stay above 2% through the second half of 2026, with food prices remaining a key risk. The government’s budget plan for 2027, due in the autumn, will show whether it heeds the IMF’s call for consolidation or prioritizes growth support.

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Data sourced from Central Statistical Bureau of Latvia and Bank of Latvia. Analysis by Economic Pulse Data Team.

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Edited by Editorial Desk. Fact-checked by Editorial Desk. This is analysis, not financial advice.